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The Real Reasons for the Upcoming War With Iraq: A Macroeconomic and Geo-strategic Analysis of the Unspoken Truth
by William Clark
Although completely suppressed by the U.S. media, the answer to
the Iraq enigma is simple yet shocking -- it is an oil currency
war. The real reason for this upcoming war is this administration's
goal of preventing further Organization of the Petroleum Exporting
Countries (OPEC) momentum towards the euro as an oil transaction
currency standard. However, in order to pre-empt OPEC, they need to
gain geo-strategic control of Iraq along with its 2nd largest proven
oil reserves. This essay will discuss the macroeconomics of the `petro-dollar'
and the unpublicized but real threat to U.S. economic hegemony from
the euro as an alternative oil transaction currency. The author
advocates reform of the global monetary system including a
dollar/euro currency ‘trading band’ with reserve status parity, and
a dual OPEC oil transaction standard. These reforms could
potentially reduce future oil currency warfare.
*~*~*~*~*~*~*"If a nation expects to be ignorant and free, it
expects what never was and never will be . . . The People cannot be
safe without information. When the press is free, and every man is
able to read, all is safe."
Those words by Thomas Jefferson embody the unfortunate state of
affairs that have beset our nation. As our government prepares to go
to war with Iraq, our country seems unable to answer even the most
basic questions about this upcoming conflict. First, why is there
virtually no international support from our historic allies to
topple Saddam? If Iraq's weapons of mass destruction (WMD) program
truly possessed the threat level that President Bush has repeatedly
purported, why is there no international coalition to militarily
disarm Saddam? Secondly, despite over 350 unfettered U.N inspections
to date, there has been no evidence reported of a reconstituted
Iraqi WMD program. Third, and despite President Bush's rhetoric, the
CIA has not found any links between Saddam Hussein and Al Qaeda. To
the contrary, some intelligence analysts believe it is far more
likely Al Qaeda might acquire an unsecured former Soviet Union
Weapon(s) of Mass Destruction, or potentially from sympathizers
within a destabilized Pakistan.
Moreover, immediately following Congress's vote on the Iraq
Resolution, we suddenly became aware of North Korea's nuclear
program violations. Kim Jong Il is processing uranium in order to
produce nuclear weapons this year. President Bush has not provided a
rationale answer as to why Saddam's seemingly dormant WMD program
possesses a more imminent threat that North Korea's active nuclear
weapons program. Strangely, Donald Rumsfeld suggested that if Saddam
were `exiled' we could avoid an Iraq war. Confused yet? Well, I'm
going to give their game away -- the core driver for toppling Saddam
is actually the euro currency, the -
€.
Although completely suppressed in the U.S. media, the answer to
the Iraq enigma is simple yet shocking. The upcoming war in Iraq war
is mostly about how the ruling class at Langley and the Bush/Cheney
administration view hydrocarbons at the geo-strategic level, and the
unspoken but overarching macroeconomic threats to the U.S. dollar
from the euro. The Real Reason for this upcoming war is this
administration's goal of preventing further OPEC momentum towards
the euro as an oil transaction currency standard. However, in order
to pre-empt
OPEC, they need to gain geo-strategic control of Iraq along with its
2nd largest proven oil reserves.
This lengthy essay will discuss the macroeconomics of the `petro-dollar'
and the unpublicized but real threat to U.S. economic hegemony from
the euro as an alternative oil transaction currency. The following
is how an astute and anonymous friend alluded to the unspoken truth
about this upcoming war with Iraq:
"The Federal Reserve's greatest nightmare is
that OPEC will switch its international transactions from a
dollar standard to a euro standard. Iraq actually made this
switch in Nov. 2000 (when the euro was worth around 80 cents),
and has actually made off like a bandit considering the dollar's
steady depreciation against the euro. (Note: the dollar
declined 17% against the euro in 2002.)
"The real reason the Bush administration
wants a puppet government in Iraq -- or more importantly, the
reason why the corporate-military-industrial network
conglomerate wants a puppet government in Iraq -- is so that it
will revert back to a dollar standard and stay that way." (While
also hoping to veto any wider OPEC momentum towards the euro,
especially from Iran -- the 2nd largest OPEC producer
who is actively discussing a switch to euros for its oil
exports)."
Furthermore, despite Saudi Arabia being our `client state,' the
Saudi regime appears increasingly weak/ threatened from massive
civil unrest. Some analysts believe a `Saudi Revolution' might be
plausible in the aftermath of an unpopular U.S. invasion and
occupation of Iraq (ie. Iran circa 1979) [1].
Undoubtedly, the Bush administration is acutely aware of these
risks. Hence, the neo-conservative framework entails a large and
permanent military presence in the Persian Gulf region in a post
Saddam era, just in case we need to surround and grab Saudi's oil
fields in the event of a coup by an anti-western group. But first
back to Iraq.
"Saddam sealed his fate when he decided to switch to the euro
in late 2000 (and later converted his $10 billion reserve fund
at the U.N. to euros) -- at that point, another manufactured
Gulf War become inevitable under Bush II. Only the most extreme
circumstances could possibly stop that now and I strongly doubt
anything can -- short of Saddam getting replaced with a pliant
regime.
"Big Picture Perspective: Everything else aside from the
reserve currency and the Saudi/Iran oil issues (i.e. domestic
political issues and international criticism) is peripheral and
of marginal consequence to this administration. Further, the
dollar-euro threat is powerful enough that they will rather risk
much of the economic backlash in the short-term to stave off the
long-term dollar crash of an OPEC transaction standard change
from dollars to euros. All of this fits into the broader Great
Game that encompasses Russia, India, China."
This information about Iraq's oil currency is being censored by
the U.S. media and the Bush administration as the truth could
potentially curtail both investor and consumer confidence, reduce
consumer borrowing/spending, create political pressure to form a new
energy policy that slowly weans us off Middle-Eastern oil, and of
course stop our march towards a war with Iraq. This quasi `state
secret' can be found on a Radio Free Europe article discussing
Saddam's switch for his oil sales from dollars to the euros
effective November 6, 2000:
"Baghdad's switch from the dollar to the euro for oil trading
is intended to rebuke Washington's hard-line on sanctions and
encourage Europeans to challenge it. But the political message
will cost Iraq millions in lost revenue. RFE/RL correspondent
Charles Recknagel looks at what Baghdad will gain and lose, and
the impact of the decision to go with the European currency." [2]
At the time of the switch many analysts were surprised that
Saddam was willing to give up millions in oil revenue for what
appeared to be a political statement. However, contrary to one of
the main points of this November 2000 article, the steady
depreciation of the dollar versus the euro since late 2001 means
that Iraq has profited handsomely from the switch in their reserve
and transaction currencies. The euro has gained roughly 20% against
the dollar in that time, which also applies to the $10 billion in
Iraq's U.N. `oil for food' reserve fund that was previously held in
dollars has also gained that same percent value since the switch.
What would happen if OPEC made a sudden (collective) switch to
euros, as opposed to a gradual transition?
"Otherwise, the effect of an OPEC switch to the euro would be
that oil-consuming nations would have to flush dollars out of
their (central bank) reserve funds and replace these with euros.
The dollar would crash anywhere from 20-40% in value and the
consequences would be those one could expect from any currency
collapse and massive inflation (think Argentina currency crisis,
for example). You'd have foreign funds stream out of the U.S.
stock markets and dollar denominated assets, there'd surely be a
run on the banks much like the 1930s, the current account
deficit would become unserviceable, the budget deficit would go
into default, and so on. Your basic 3rd world economic crisis
scenario.
"The United States economy is intimately tied to the dollar's
role as reserve currency. This doesn't mean that the U.S.
couldn't function otherwise, but that the transition would have
to be gradual to avoid such dislocations (and the ultimate
result of this would probably be the U.S. and the E.U. switching
roles in the global economy)."
Although the above scenario is unlikely, and most assuredly
undesirable, under certain economic conditions it is plausible. In
fact, one of the conditions that could create such an environment is
a near unilateral U.S. led war in the Middle East. For example, a
large spike in oil prices could create huge problems for the
imperiled Japanese banking system, the world ’s largest holder of U.S. dollar reserves.
Many economists deem that the G-8 industrialized nations should meet
and reform the global monetary system. Unfortunately the current
Bush administration has chosen a military option instead of a
multilateral conference on monetary reform. In the aftermath of
toppling Saddam it is clear the U.S. will keep a large and permanent
military force in the Persian Gulf. Indeed, there is no `exit
strategy' in Iraq, as the military will be needed to protect the
newly installed Iraqi regime, and perhaps send a message to other
OPEC producers that they might receive `regime change' if they
convert their oil exports to the euro.
An interesting yet again underreported story from this summer
related to another OPEC `Axis of Evil' country, Iran, who is
vacillating on the euro issue.
"Iran's proposal to receive payments for crude oil sales to
Europe in euros instead of U.S. dollars is based primarily on
economics, Iranian and industry sources said.
"But politics are still likely to be a factor in any
decision, they said, as Iran uses the opportunity to hit back at
the U.S. government, which recently labeled it part of an `axis
of evil.’
"The proposal, which is now being reviewed by the Central
Bank of Iran, is likely to be approved if presented to the
country's parliament, a parliamentary representative said.
"`There is a very good chance MPs will
agree to this idea . . . now that the euro is stronger, it is
more logical,' the parliamentary representative said." [3]
Moreover, and perhaps most telling, during 2002 the majority of
reserve funds in Iran's central bank have been shifted to euros. It
appears imminent that Iran intends to switch to euros for their oil
currency.
"More than half of the country's assets in the Forex Reserve
Fund have been converted to euro, a member of the Parliament
Development Commission, Mohammad Abasspour announced. He noted
that higher parity rate of euro against the US dollar will give
the Asian countries, particularly oil exporters, a chance to
usher in a new chapter in ties with European Union's member
countries.
"He said that the United States dominates
other countries through its currency, noting that given the
superiority of the dollar against other hard currencies, the US
monopolizes global trade. The lawmaker expressed hope that the
competition between euro and dollar would eliminate the monopoly
in global trade." [4]
After toppling Saddam, this administration may decide that Iran's
disloyalty to the dollar qualifies them as the next target in the
`war on terror.' Iran's interest in switching to the euro as their
currency for oil exports is well documented. Perhaps this MSNBC
article alludes to the objectives of neo-conservatives.
"While still wrangling over how to overthrow Iraq's Saddam
Hussein, the Bush administration is already looking for other
targets. President Bush has called for the ouster of Palestinian
leader Yasir Arafat. Now some in the administration -- and
allies at D.C. think tanks -- are eyeing Iran and even Saudi
Arabia. As one senior British official put it: `Everyone wants
to go to Baghdad. Real men want to go to Tehran.'" [5]
Aside from these political risks regarding Saudi Arabia and Iran,
another risk factor is actually Japan. Perhaps the biggest gamble in
a protracted Iraq war may be Japan's weak economy. [6]
If the war
creates prolonged oil high prices ($45 per barrel over several
months), or a short but massive oil price spike ($80 to $100 per
barrel), some analysts believe Japan's fragile economy would
collapse. Japan is quite hypersensitive to oil prices, and if its
banks default, the collapse of the second largest economy would set
in motion a sequence of events that could prove quite devastating to
the U.S. economy. Indeed, Japan's fall in an Iraq war could create
the economic dislocations that begin in the Pacific Rim but quickly
spread to Europe and Russia. Unlike the U.S. and U.K. , the Russian
government lacks the controls to thwart a disorderly run on the
dollar, and such an event could ultimately force an OPEC switch to
euros.
Additionally, other risks might arise if the Iraq war goes poorly
or becomes prolonged. It is possible that civil unrest may unfold in
Kuwait or other OPEC members including Venezuela, as the latter has
indicated they may switch to euros just as Saddam did in November
2000. This would foster the very situation this administration is
trying to prevent: another OPEC member switching to euros as their
oil transaction currency.
Incidentally, the final `Axis of Evil' country, North Korea,
recently decided to officially drop the dollar and begin using euros
for trade, effective Dec. 7, 2002. [7]
Unlike the
OPEC-producers, North Korea's switch will have negligible economic
impact, but it illustrates the geopolitical fallout of President
Bush's harsh rhetoric. Much more troubling are North Korea's recent
actions following the oil embargo of their country. They are in dire
need of oil and food; and in an act of desperation they have
re-activated their pre-1994 nuclear program. Processing uranium
appears to be taking place at a rapid pace, and it appears their
strategy is to prompt negotiations with the U.S. regarding food and
oil. The CIA estimates that North Korea could produce 4-6 nuclear
weapons by the second half of 2003. Ironically, this crisis over
North Korea's nuclear program further confirms the fraudulent
premise for which this war with Saddam was entirely contrived.
Unfortunately, neo-conservatives such as George Bush, Dick
Cheney, Donald Rumsfeld, Paul Wolfowitz and Richard Perle fail to
grasp that Newton's Law applies equally to both physics and the
geo-political sphere as well: "For every action there is an equal
but opposite reaction."
During the 1990s the world viewed the U.S. as a rather
self-absorbed but essentially benevolent superpower. Military
actions in Iraq (1990-91 & 1998), Serbia and Kosovo (1999) were
undertaken with both U.N. and NATO cooperation and thus afforded
international legitimacy. President Clinton also worked to reduce
tensions in Northern Ireland and attempted to negotiate a resolution
to the Israeli-Palestinian conflict.
However, in both the pre and post 9/11 intervals, the `America
first' policies of the Bush administration, with its unwillingness
to honor International Treaties, along with their aggressive
militarisation of foreign policy, has significantly damaged our
reputation abroad. Following 9/11, it appears that President Bush's
`warmongering rhetoric' has created global tensions -- as we are now
viewed as a belligerent superpower willing to apply unilateral
military force without U.N. approval. Additionally, this
administrations failure to fully engage in negotiations regarding
the Israeli/Palestinian conflict is unfortunate. Lamentably, the
tremendous amount of international sympathy that we witnessed in the
immediate aftermath of the September 11th tragedy has been replaced
with fear and anger at our government. This administration's
bellicosity has changed the worldview, and `anti-Americanism' is
proliferating even among our closest allies. [8]
Even more alarming, and completely unreported in the U.S media,
are some monetary shifts in the reserve funds of foreign governments
away from the dollar with movements towards the euro. [9]
{[10][9a][9b]} It
appears that the world community may lack faith in the Bush
administration's economic policies, and along with OPEC, seems
poised to respond with economic retribution if the U.S. government
is regarded as an uncontrollable and dangerous superpower. The
plausibility of abandoning the dollar standard for the euro is
growing. An interesting U.K. article by Hazel Henderson outlines the
dynamics and the potential outcomes:
"The most likely end to US
hegemony may come about through a combination of high oil prices
(brought about by US foreign policies toward the Middle East)
and deeper devaluation of the US dollar (expected by many
economists). Some elements of this scenario:
-
US global over-reach in the `war on terrorism' already
leading to deficits as far as the eye can see -- combined with
historically-high US trade deficits -- lead to a further run on
the dollar. This and the stock market doldrums make the US less
attractive to the world's capital.
-
More developing countries follow the lead of Venezuela and
China in diversifying their currency reserves away from dollars
and balanced with euros. Such a shift in dollar-euro holdings in
Latin America and Asia could keep the dollar and euro close to
parity.
-
OPEC could act on some of its internal discussions and
decide (after concerted buying of euros in the open market) to
announce at a future meeting in Vienna that OPEC's oil will be
re-denominated in euros, or even a new oil-backed currency of
their own. A US attack on Iraq sends oil to € 40 (euros) per
barrel.
-
The Bush Administration's efforts to control the domestic
political agenda backfires. Damage over the intelligence
failures prior to 9/11 and warnings of imminent new terrorist
attacks precipitate a further stock market slide.
-
All efforts by Democrats and the 57% of the US public to
shift energy policy toward renewable, efficiency, standards,
higher gas taxes, etc. are blocked by the Bush Administration
and its fossils fuel industry supporters. Thus, the USA remains
vulnerable to energy supply and price shocks.
-
The EU recognizes its own economic and political power as
the euro rises further and becomes the world's other reserve
currency. The G-8 pegs the euro and dollar into a trading band
-- removing these two powerful currencies from speculators
trading screens (a "win-win" for everyone!). Tony Blair
persuades Brits of this larger reason for the UK to join the
euro.
-
Developing countries lacking dollars or "hard" currencies
follow Venezuela's lead and begin bartering their undervalued
commodities directly with each other in computerized swaps and
counter trade deals. President Chavez has inked 13 such country
barter deals on its oil, e.g., with Cuba in exchange for Cuban
health paramedics who are setting up clinics in rural Venezuelan villages.
The result of this scenario? The USA could no longer run its
huge current account trade deficits or continue to wage
open-ended global war on terrorism or evil. The USA ceases
pursuing unilateralist policies. A new US administration begins
to return to its multilateralist tradition, ceases its
obstruction and rejoins the UN and pursues more realistic
international cooperation." [10]
As for the events currently taking place in Venezuela, items #2
and #7 on the above list may allude to why the Bush administration
quickly endorsed the failed military-led coup of Hugo Chavez in
April 2002. Although the coup collapsed after 2 days, various
reports suggest the CIA and a rather embarrassed Bush administration
approved and may have been actively involved with the
civilian/military coup plotters.
"George W. Bush's administration was the failed coup's
primary loser, underscoring its bankrupt hemispheric policy. Now
it is slowly filtering out that in recent months White House
officials met with key coup figures, including Carmona. Although
the administration insists that it explicitly objected to any
extra-constitutional action to remove Chavez, comments by senior
U.S. officials did little to convey this. . . .
"The CIA's role in a 1971 Chilean strike could have served as
the working model for generating economic and social instability
in order to topple Chavez. In the truckers' strike of that year,
the agency secretly orchestrated and financed the artificial
prolongation of a contrived work stoppage in order to
economically asphyxiate the leftist Salvador Allende government.
"This scenario would have had CIA operatives acting in
liaison with the Venezuelan military, as well as with opposition
business and labor leaders, to convert a relatively minor
afternoon-long work stoppage by senior management into a nearly
successful coup de grâce." [11]
Interestingly, according to an article by Michael Ruppert,
Venezuelan's ambassador Francisco Mieres-Lopez apparently floated
the idea of switching to the euro as their oil currency standard
approximately one year before the failed coup attempt. Furthermore,
there is evidence that the CIA is still active in its attempts to
overthrow the democratically elected Chavez administration. In fact,
this past December a Uruguayan government official exposed the
ongoing covert CIA operations in Venezuela:
"Uruguayan EP-FA congressman Jose Nayardi says he has
information that far-reaching plan have been put into place by
the CIA and other North American intelligence agencies to
overthrow Venezuelan President Hugo Chavez Frias within the next
72 hours. . . .
Nayardi says he has received copies of top-secret
communications between the Bush administration in Washington and
the government of Uruguay requesting the latter's cooperation to
support white collar executives and trade union activists to
`break down levels of intransigence within the Chavez Frias
administration.'" [12]
Venezuela is the fourth largest producer of oil, and the
corporate elites whose political power runs unfettered in the
Bush/Cheney oligarchy appear interested in privatizing Venezuela's
oil industry. Furthermore, the establishment might be concerned that
Chavez's `barter deals' with 12 Latin American countries and Cuba
are effectively cutting the U.S. dollar out of the vital oil
transaction currency cycle. Commodities are being traded among these
countries in exchange for Venezuela's oil, thereby reducing reliance
on fiat dollars. If these unique oil transactions proliferate, they
could create more devaluation pressure on the dollar. Continuing
attempts by the CIA to remove Hugo Chavez appear likely.
The U.S. economy has acquired significant structural imbalances,
including our record-high trade account deficit (now almost 5% of
GDP), a $6.3 trillion dollar deficit (60% of GDP), and the recent
return to annual budget deficits in the hundreds of billions. These
are factors that would devalue the currency of any nation under the
`old rules.' Why is the dollar still predominant despite these
structural flaws? The elites understand that the strength of the
dollar does not merely rest on our economic output per se. The
dollar posses two unique advantages relative to all other hard
currencies.
The reality is that the strength of the dollar since 1945 rests
on its being the international reserve currency. Thus it assumes the
role of fiat currency for global oil transactions (ie. `petro-dollar').
The U.S. prints hundreds of billions of these fiat petro-dollars,
which are then used by nation states to purchase oil/energy from
OPEC producers (except Iraq, to some degree Venezuela, and perhaps
Iran in the near future). These petro-dollars are then re-cycled
from OPEC back into the U.S. via Treasury Bills or other
dollar-denominated assets such as U.S. stocks, real estate, etc. In
essence, global oil consumption provides a subsidy to our economy.
The `old rules' for valuation of our currency and economic power
were based on our flexible market, free flow of trade goods, high
per worker productivity, manufacturing output/trade surpluses,
government oversight of accounting methodologies (ie. SEC),
developed infrastructure, education system, and of course total cash
flow and profitability. While many of these factors remain present,
over the last two decades we have diluted some of these `safe
harbor' fundamentals. Despite vast imbalances and structural
problems that are escalating within the U.S. economy, the dollar as
the fiat oil currency created `new rules'. The following excerpts
from an Asia Times article discusses the virtues of our fiat
oil currency and dollar hegemony (or vices from the perspective of
developing nations, whose debt is denominated in dollars).
"Ever since 1971, when US president Richard Nixon took the
dollar off the gold standard (at $35 per ounce) that had been
agreed to at the Bretton Woods Conference at the end of World
War II, the dollar has been a global monetary instrument that
the United States, and only the United States, can produce by
fiat. The dollar, now a fiat currency, is at a 16-year
trade-weighted high despite record US current-account deficits
and the status of the US as the leading debtor nation. The US
national debt as of April 4 was $6.021 trillion against a gross
domestic product (GDP) of $9 trillion.
"World trade is now a game in which the US produces dollars
and the rest of the world produces things that dollars can buy.
The world's interlinked economies no longer trade to capture a
comparative advantage; they compete in exports to capture needed
dollars to service dollar-denominated foreign debts and to
accumulate dollar reserves to sustain the exchange value of
their domestic currencies. To prevent speculative and
manipulative attacks on their currencies, the world's central
banks must acquire and hold dollar reserves in corresponding
amounts to their currencies in circulation. The higher the
market pressure to devalue a particular currency, the more
dollar reserves its central bank must hold. This creates a
built-in support for a strong dollar that in turn forces the
world's central banks to acquire and hold more dollar reserves,
making it stronger. This phenomenon is known as dollar hegemony,
which is created by the geopolitically constructed peculiarity
that critical commodities, most notably oil, are denominated in
dollars. Everyone accepts dollars because dollars can buy oil.
The recycling of petro-dollars is the price the US has extracted
from oil-producing countries for US tolerance of the
oil-exporting cartel since 1973.
"By definition, dollar reserves must be invested in US
assets, creating a capital-accounts surplus for the US economy.
Even after a year of sharp correction, US stock valuation is
still at a 25-year high and trading at a 56 percent premium
compared with emerging markets.
". . . The US capital-account surplus in
turn finances the US trade deficit. Moreover, any asset,
regardless of location, that is denominated in dollars is a US
asset in essence. When oil is denominated in dollars through US
state action and the dollar is a fiat currency, the US
essentially owns the world's oil for free. And the more the US
prints greenbacks, the higher the price of US assets will rise.
Thus a strong-dollar policy gives the US a double win." [13]
This unique geo-political agreement with Saudi Arabia in 1973 has
worked to our favor for the past 30 years, as this arrangement has
raised the entire asset value of all dollar denominated
assets/properties, and allowed the Federal Reserve to create a truly
massive debt and credit expansion (or `credit bubble' in the view of
some economists). These structural imbalances in the U.S. economy
are sustainable as long as:
1) nations continue to demand and purchase oil for their
energy/survival needs, and
2) the fiat reserve currency for global oil transactions
remain the U.S. dollar (& dollar only).
These underlying factors, along with the `safe harbor' reputation
of U.S. investments afforded by the dollar's reserve currency status
propelled the U.S. to economic and military hegemony in the
post-World War II period. However, the introduction of the euro is a
significant new factor, and appears to be the primary threat to U.S.
economic hegemony. Moreover, in December 2002 ten additional
countries were approved for full membership into the E.U. In 2004
this will result in an aggregate GDP of $9.6 trillion and 450
million people, directly competing with the U.S. economy ($10.5
trillion GDP, 280 million people).
Especially interesting is a speech given by Mr Javad Yarjani, the
Head of OPEC's Petroleum Market Analysis Department, in a visit to
Spain in April 2002. His speech dealt entirely with the subject of
OPEC oil transaction currency standard with respect to both the
dollar and the euro. The following excerpts from this OPEC executive
provide insights into the conditions that would create momentum for
an OPEC currency switch to the euro. Indeed, his candid analysis
warrants careful consideration given that two of the requisite
variables he outlines for the switch have taken place since this
speech in Spring 2002. These vital stories are discussed in the
European media, but have been censored by our own mass media.
". . . The question that comes to mind is whether the euro
will establish itself in world financial markets, thus
challenging the supremacy of the US dollar, and consequently
trigger a change in the dollar's dominance in oil markets. As we
all know, the mighty dollar has reigned supreme since 1945, and
in the last few years has even gained more ground with the
economic dominance of the United States, a situation that may
not change in the near future. By the late 90s, more than
four-fifths of all foreign exchange transactions, and half of
all world exports, were denominated in dollars. In addition, the
US currency accounts for about two thirds of all official
exchange reserves. The world's dependency on US dollars to pay
for trade has seen countries bound to dollar reserves, which are
disproportionably higher than America's share in global output.
The share of the dollar in the denomination of world trade is
also much higher than the share of the US in world trade.
"Having said that, it is worthwhile to note that in the long
run the euro is not at such a disadvantage versus the dollar
when one compares the relative sizes of the economies involved,
especially given the EU enlargement plans. Moreover, the
Euro-zone has a bigger share of global trade than the US and
while the US has a huge current account deficit, the euro area
has a more, or balanced, external accounts position. One of the
more compelling arguments for keeping oil pricing and payments
in dollars has been that the US remains a large importer of oil,
despite being a substantial crude producer itself. However,
looking at the statistics of crude oil exports, one notes that
the Euro-zone is an even larger importer of oil and petroleum
products than the US. . . .
". . . From the EU's point
of view, it is clear that Europe would prefer to see payments
for oil shift from the dollar to the euro, which effectively
removed the currency risk. It would also increase demand for the
euro and thus help raise its value. Moreover, since oil is such
an important commodity in global trade, in term of value, if
pricing were to shift to the euro, it could provide a boost to
the global acceptability of the single currency. There is also
very strong trade links between OPEC Member Countries (MCs) and
the Euro-zone, with more than 45 percent of total merchandise
imports of OPEC MCs coming from the countries of the Euro-zone,
while OPEC MCs are main suppliers of oil and crude oil products
to Europe. . . .
"Of major importance to the ultimate success of the euro, in
terms of the oil pricing, will be if Europe's two major oil
producers -- the United Kingdom and Norway join the single
currency. Naturally, the future integration of these two
countries into the Euro-zone and Europe will be important
considering they are the region's two major oil producers in the
North Sea, which is home to the international crude oil
benchmark, Brent. This might create a momentum to shift the oil
pricing system to euros. . . .
"In the short-term, OPEC MCs, with possibly a few exceptions,
are expected to continue to accept payment in dollars.
Nevertheless, I believe that OPEC will not discount entirely the
possibility of adopting euro pricing and payments in the future.
The Organization, like many other financial houses at present,
is also assessing how the euro will settle into its life as a
new currency. The critical question for market players is the
overall value and stability of the euro, and whether other
countries within the Union will adopt the single currency.
"It is quite possible that
as the bilateral trade increases between the Middle East and the
European Union, it could be feasible to price oil in euros
considering Europe is the main economic partner of that region.
This would foster further ties between these trading blocs by
increasing commercial exchange, and by helping attract
much-needed European investment to the Middle East.
"In the long-term, perhaps
one question that comes to mind is could a dual system operate
simultaneously? Could one pricing system apply to the Western
Hemisphere in dollars and for the rest of the world in euros?
This will remain the test for the euro, should the currency gain
ground in the market of oil transactions
". . . Should the euro challenge the
dollar in strength, which essentially could include it in the
denomination of the oil bill, it could be that a system may
emerge which benefits more countries in the long-term. Perhaps
with increased European integration and a strong European
economy, this may become a reality. Time may be on your side. I
wish the euro every success." [14]
Based on this important speech, momentum for OPEC to consider
switching to the euro will grow once the E.U. expands in May 2004 to
450 million people with the inclusion of 10 additional member
states. The aggregate GDP will increase from $7 trillion to $9.6
trillion. This enlarged European Union (EU) will be an oil consuming
purchasing population 33% larger than the U.S., and over half of
OPEC crude oil will be sold to the EU as of mid-2004. This does not
include other potential E.U./euro entrants such as the U.K., Norway,
Denmark and Sweden. It should be noted that since late 2002, the
euro has been trading at parity or above the dollar, and analysts
predict the dollar will continue its downward trending in 2003
relative to the euro.
It appears the final two pivotal items that would create the OPEC
transition to euros will be based on (1) if and when Norway's Brent
crude is re-dominated in euros and (2) when the U.K. adopts the
euro. Regarding the later, Tony Blair is lobbying heavily for the
U.K. to adopt the euro, and their adoption would seem imminent
within this decade. If and when the U.K. adopts the euro currency I
suspect a concerted effort will be quickly mounted to establish the
euro as an international reserve currency. Again, I offer the
following information from my astute and anonymous acquaintance who
analyzes these monetary matters very carefully:
"The pivotal vote will probably be Sweden, where approval
this next autumn of adopting the euro also would give momentum
to the Danish government's strong desire to follow suit. Polls
in Denmark now indicate that the euro would pass with a
comfortable margin and Norwegian polls show a growing majority
in favor of EU membership. Indeed, with Norway having already
integrated most EU economic directives through the EEA
partnership and with their strongly appreciated currency, their
accession to the euro would not only be effortless, but of great
economic benefit.
"As go the Swedes, so probably will go the Danes &
Norwegians. It's the British who are the real obstacle to
building momentum for the euro as international transaction &
reserve currency. So long as the United Kingdom remains apart
from the euro, reducing exchange rate costs between the euro and
the British pound remains their obvious priority. British
adoption (a near-given in the long run) would mount significant
pressure toward repegging the Brent crude benchmark -- which is
traded on the International Petroleum Exchange in London -- and
the Norwegians would certainly have no objection whatsoever that
I can think of, whether or not they join the European Union.
"Finally, the maneuvers toward reducing the global dominance
of the dollar are already well underway and have only reason to
accelerate so far as I can see. An OPEC pricing shift would seem
rather unlikely prior 2004 -- barring political motivations (ie.
from anxious OPEC members) or a disorderly collapse of the
dollar (ie. Japanese bank collapse due to high oil prices
following a prolonged Iraq conflict) but appears quite viable to
take place before the end of the decade."
In other words, around 2005/2006, from a purely economic and
monetary perspective, it will become logical for several OPEC
producers to transition to the euro for oil pricing. Of course that
will devalue the dollar, and hurt the US economy unless it begins
making structural and monetary changes right away -- or use its
massive military power to force events upon OPEC …
Facing these potentialities, I hypothesize that President Bush
intends to topple Saddam in 2003 in a pre-emptive attempt to
initiate massive Iraqi oil production in far excess of OPEC quotas,
to reduce global oil prices, and thereby dismantle OPEC's price
controls. The end-goal of the neo-conservatives is incredibly bold
yet simple in purpose, to use the `war on terror' as the premise to
finally dissolve OPEC's decision-making process, thus ultimately
preventing the cartel's inevitable switch to pricing oil in euros.
How would the Bush administration break-up the OPEC cartel's
price controls in a post-Saddam Iraq? First, the newly installed
regime (apparently a U.S. General) will convert Iraq back to the
dollar standard. Next, with the U.S. military protecting the oil
fields, the new ruling junta will undertake the necessary steps to
rapidly increase production of Iraq oil -- well beyond OPEC's 2
million barrel per day quota.
Dr. Nayyer Ali offers a succinct analysis of how Iraq's
underutilized oil reserves will not be a `profit-maker' for the U.S.
government, but it will serve as the crucial economic instrument to
leverage and dissolve OPEC's price controls, thus fulfilling the
long sought-after goal of the neo-conservatives to disband OPEC:
". . . Despite this vast pool of oil, Iraq has never produced
at a level proportionate to the reserve base. Since the Gulf
War, Iraq’s production has been limited by sanctions and allowed
sales under the oil for food program (by which Iraq has sold 60
billion dollars worth of oil over the last 5 years) and what
else can be smuggled out. This amounts to less than 1 billion
barrels per year. If Iraq were reintegrated into the world
economy, it could allow massive investment in its oil sector and
boost output to 2.5 billion barrels per year, or about 7 million
barrels a day.
"Total world oil production is about 75 million barrels, and
OPEC combined produces about 25 million barrels.
"What would be the consequences of this? There are two
obvious things.
"First would be the collapse of OPEC, whose strategy of
limiting production to maximize price will have finally reached
its limit. An Iraq that can produce that much oil will want to
do so, and will not allow OPEC to limit it to 2 million barrels
per day. If Iraq busts its quota, then who in OPEC will give up
5 million barrels of production? No one could afford to, and
OPEC would die. This would lead to the second major consequence,
which is a collapse in the price of oil to the 10-dollar range
per barrel. The world currently uses 25 billion barrels per
year, so a 15-dollar drop will save oil-consuming nations 375
billion dollars in crude oil costs every year.
". . . The Iraq war is not a moneymaker.
But it could be an OPEC breaker. That however is a long-term
outcome that will require Iraq to be successfully reconstituted
into a functioning state in which massive oil sector investment
can take place." [15]
The American people are largely oblivious to the economic risks
regarding President Bush's upcoming war. Not only is Japan's
weakened economy at grave risk from a spike in oil prices, but
additional risks relate to Iran and Venezuela as well, either of
whom could move to the euros, thus providing further momentum for
OPEC to act on their `internal discussions' and switch to the euro
as their new oil currency. The Bush administration believes that by
toppling Saddam they will remove the juggernaut, thus allowing the
US to control Iraqi's huge oil reserves, and finally break-up and
dissolve the 10 remaining countries in OPEC.
This last issue is undoubtedly a significant gamble even in the
best-case scenario of a quick and relatively painless war that
topples Saddam and leaves Iraq's oil fields intact. Undoubtedly, the
OPEC cartel could feel threatened by the goal of the
neo-conservatives to break-up OPEC's price controls ($22-$28 per
barrel). Perhaps the Bush administration's ambitious goal of
flooding the oil market with Iraqi crude may work, but I have
doubts. Will OPEC simply tolerate quota-busting Iraqi oil
production, thus delivering to them a lesson in self-inflicted
hara-kiri (suicide)? Contrarily, OPEC could meet in Vienna and in an
act of self-preservation re-denominate the oil currency to the euro.
Such a decision would mark the end of U.S. dollar hegemony, and thus
the end of our precarious economic superpower status. Again, I offer
the astute analysis of my expert friend regarding the colossal
gamble this administration is about to undertake:
"One of the dirty little secrets of today's international
order is that the rest of the globe could topple the United
States from its hegemonic status whenever they so choose with a
concerted abandonment of the dollar standard. This is America's
preeminent, inescapable Achilles Heel for now and the
foreseeable future.
"That such a course hasn't been pursued to date bears more
relation to the fact that other Westernized, highly developed
nations haven't any interest to undergo the great disruptions
which would follow -- but it could assuredly take place in the
event that the consensus view coalesces of the United States as
any sort of `rogue' nation. In other words, if the dangers of
American global hegemony are ever perceived as a greater
liability than the dangers of toppling the international order.
The Bush administration and the neo-conservative movement has
set out on a multiple-front course to ensure that this cannot
take place, in brief by a graduated assertion of military
hegemony atop the existent economic hegemony.
The paradox I've illustrated with this one narrow scenario is
that the quixotic course itself may very well bring about the
feared outcome that it means to preempt. We shall see!"
Regrettably, under this administration we have returned to
massive deficit spending, and the lack of strong SEC enforcement has
further eroded investor confidence. Indeed, the flawed economic and
tax policies and of the Bush administration may be exacerbating the
weakness of the dollar, if not outright accelerating some countries
to diversify their central bank reserve funds with euros as an
alternative to the dollar. From a foreign policy perspective, the
terminations of numerous international treaties and disdain for
international cooperation via the U.N. and NATO have angered even
our closest allies.
Synopsis:
It would appear that any attempt by OPEC member
states in the Middle East or Latin America to transition to the euro
as their oil transaction currency standard shall be met with either
overt U.S. military actions or covert U.S. intelligence agency
interventions. Under the guise of the perpetual `war on terror' the
Bush administration is manipulating the American people about the
unspoken but very real macroeconomic reasons for this upcoming war
with Iraq. This war in Iraq will not be based on any threat from
Saddam's old WMD program, or from terrorism. This war will be over
the global currency of oil.
Sadly, the U.S. has become largely ignorant and complacent. Too
many of us are willing to be ruled by fear and lies, rather than by
persuasion and truth. Will we allow our government to initiate the
dangerous `pre-emptive doctrine' by waging an unpopular war in Iraq,
while we refuse to acknowledge that Saddam does not pose an imminent
threat to the United States? Furthermore, we seem unable to address
the structural weakness of our economy due to massive debt
manipulation, unaffordable 2001 tax cuts, record levels of trade
deficits, unsustainable credit expansion, corporate accounting
abuses, near zero personal savings, record personal indebtedness,
and our reliance and over consumption of Middle Eastern oil.
Regardless of whatever Dr. Blix finds or doesn't find in Iraq
regarding WMD, it appears that President Bush is determined to
pursue his `pre-emptive' imperialist war to secure a large portion
of the earth's remaining hydrocarbons, and then use Iraq's
underutilized oil to destroy the OPEC cartel. Will this gamble work?
That remains to be seen. However, the history of warfare is replete
with unintended consequences. It is quite plausible that our nation
may suffer not only from increased Al-Qaeda sponsored terrorism, but
economic retribution from the international community or OPEC
members as well. Will we sit idle and watch CNN, as our
government becomes an international pariah by discarding
international law as it wages a unilateral war in Iraq? How can we
effectively thwart the threat of international Al Qaeda terrorism if
we alienate so many of our allies?
We must ask ourselves this fundamental question: Is it morally
defensible to deploy our brave but na ïve young soldiers around the globe to
enforce U.S. dollar hegemony for global oil transactions via the
barrels of their guns? Will we allow imperialist conquest of the
Middle East to feed our excessive oil consumption, while ignoring
the duplicitous overthrowing of a democratically elected government
in Latin America? Is it acceptable for a U.S. President to threaten
military force upon OPEC nation state(s) because of their sovereign
choice of currency regarding their oil exports? Will militant
imperialist over-reach destroy our international status?
Paradoxically, these belligerent policies may bring about the very
outcome this administration hopes to prevent -- an OPEC currency
switch to euros. Thus, remaining silent is not only misguided, but
false patriotism. We must not stand silent and watch our country
become a `rogue' superpower, relying on brute force, thereby forcing
the developed nations or OPEC to abandon the dollar standard -- and
with the mere stroke of a pen -- slay the U.S. Empire.
This need not be our fate. When will we demand that our
government begin the long and difficult journey towards energy
conservation, the development of renewable energy sources, and
sustained balanced budgets to allow real deficit reduction? When
will we repeal the unaffordable 2001 tax cuts to create a balanced
budget, enforce corporate accounting laws, and substantially
reinvest in our manufacturing and export sectors to gradually but
earnestly move our economy from a trade account deficit position
back into a trade account surplus position? Undoubtedly, we must
make these and many more difficult structural changes to our economy
if we are to restore and maintain our international "safe harbor"
investment status.
Furthermore, it would seem imperative that our government begins
discussions with the G-8 nations to reform the global monetary
system. We must adopt our economy to accommodate the inevitable
competition from the euro as an alternative international reserve
currency. I concur with those enlightened economists who recommend
that the U.S. begin the process of convening the next "Bretton Woods
Conference." The U.S. government should agree to the euro becoming
the next international reserve currency, and advocate that the
dollar and euro be placed into an
‘exchange band’ with reserve status parity. This would
facilitate the vital creation of a dual OPEC oil transaction
standard. It would also seem prudent to investigate a third
‘Asia bloc’ of the Yen/Yuan as reserve currency options
to give balance to the global monetary system. Regrettably, the Bush
administration's entrenched political ideology appears quite
incompatible with these necessary economic reforms. Ultimately We
the People must demand a new administration. We need responsible
leaders who are willing to return to balanced budgets, conservative
fiscal policies, and to our traditions of engaging in multilateral
foreign policies while seeking broad international cooperation.
Equally important, we must bear in mind the wisdom of founding
fathers like Thomas Jefferson who insisted that a free press is
vital, as it is our best, and often the only mechanism to protect
democracy. The American people are not aware of the issues discussed
in this essay because the U.S. mass media has been reduced to a
handful of consumption/entertainment and profit-oriented
conglomerates that filter the flow of information within the U.S.
Sadly, part of today's dilemma lays within these U.S. media
conglomerates that have failed in their responsibilities to inform
the People. Our Congress must enact reforms, as this is a legitimate
threat to our democracy. The Internet should not be our only source
of real, unfiltered news.
It has been said that all wars are fought over resources or
ideology/religion. It appears that the Bush administration may soon
add `oil currency war' as a third paradigm. However, I fear that the
world community will not tolerate a U.S. Empire that uses its
military power to conquer sovereign nations who decide to sell their
oil products in euros instead of dollars. Likewise, if President
Bush pursues an essentially unilateral war against Iraq, I doubt the
historians will be kind to him or his administration. Their agenda
is clear to the world community, but when will U.S. patriots become
cognizant of their modus operandi?
"If you tell a lie big enough and keep repeating
it, people will eventually come to believe it."
"The lie can be maintained only for such time as
the State can shield the people from the political, economic and/or
military consequences of the lie. It thus becomes vitally important
for the State to use all of its powers to repress dissent, for the
truth is the mortal enemy of the lie, and thus by extension, the
truth is the greatest enemy of the State."
Joseph Goebbels, German Minister of Propaganda,
1933-1945
Background Information on Hydrocarbons:
To understand hydrocarbons and how we got to this desperate place
in Iraq, I have listed four articles in the Reference Section from
Michael Ruppert's controversial website:
From the Wilderness. Although some of Ruppert's
articles are overwrought from time to time, their research detailing
the issues of hydrocarbons, and the interplay between energy and
Bush’s perpetual `war on terror' is
quite informative.
Other than the core driver of the dollar versus euro
currency threat, the other issue related to the upcoming war with
Iraq appears related to the Caspian Sea region. Since the mid-late
1990s the Caspian Sea region of Central Asia was thought to hold
approximately 200 billion barrels of untapped oil (the later would
be comparable to Saudi Arabia's reserve base)." [16] Based on an early feasibility
study by Enron, the easiest and cheapest way to bring this oil to
market would be a pipeline from Kazakhstan, through Afghanistan to
the Pakistan border at Malta. In 1998 then CEO of Halliburton, Dick
Cheney, expressed much interest in building that pipeline.
In fact, these oil reserves were a central
component of Cheney's energy plan released in May 2001. According to
his report, the U.S. will import 90% of its oil by 2020, and thus
tapping into the reserves in the Caspian Sea region was viewed as a
strategic goal that would help meet our growing energy demand, and
also reduce our dependence on oil from the Middle East." [17]
According to the French book, The Forbidden Truth, [18]
the Bush administration ignored
the U.N. sanctions that had been imposed upon the Taliban and
entered into negotiations with the supposedly `rogue regime' from
February 2, 2001 to August 6, 2001. According to this book, the
Taliban were apparently not very cooperative based on the statements
of Pakistan's former ambassador, Mr. Naik. He reports that the U.S.
threatened a `military option' in the summer of 2001 if the Taliban
did not acquiesce to our demands. Fortuitous for the Bush
administration and Cheney's energy plan, Bin Laden delivered to us
9/11. The pre-positioned U.S. military, along with the CIA providing
cash to the Northern Alliance leaders, led the invasion of
Afghanistan and the Taliban were routed. The pro-western Karzai
government was ushered in. The pipeline project was now back on
track in early 2002, well, sort of . . .
After three exploratory wells were built and
analyzed, it was reported that the Caspian region holds only
approximately 10 to 20 billion barrels of oil (although it does have
a lot of natural gas)." [16]
The oil is also of poor quality, with high sulfur content.
Subsequently, several major companies have now dropped their plans
for the pipeline citing the massive project was no longer
profitable. Unfortunately, this recent realization about the Caspian
Sea region has serious implications for the U.S., India, China, Asia
and Europe, as the amount of available hydrocarbons for
industrialized and developing nations has been decreased downward by
20%. (Global estimates reduced from 1.2 trillion barrels to
approximately 1 trillion) [[18]
,[19]]. The Bush administration quickly
turned its attention to a known quantity, Iraq, with its proven
reserves totaling 11% of the world's oil reserves. Our greatest
nemesis, Bin Laden, was quickly replaced with our new public enemy
#1, Saddam Hussein.
For those who would like to review the impact of
depleting hydrocarbon reserves from the geo-political perspective,
and the potential ramifications to how these developments may erode
our civil liberties and democratic processes, retired U.S. Special
Forces officer Stan Goff offers a sobering analysis in his essay:
`The Infinite War and Its Roots'. [20]
Likewise, for those who wish to review some of the unspeakable
evidence surrounding the September 11th tragedy, the controversial
essay ` The Enemy Within' by the Gore Vidal offers a
thorough introduction. Although this essay was
published in Italy and The [UK] Observer,
you will not find it printed in the U.S. media. Vidal's latest book,
Dreaming War features this as the opening essay. [21] Finally, The War on Freedom:
How and Why America was Attacked, September 11, 2001 by British
political scientist
Nafeez Mosaddeq Ahmed presents fundamentally disconcerting
questions about the 9/11 tragedy. [22]
Addendum: Notable International monetary movements
(late January 2003)
After completing my essay, I began to read about
some interesting international monetary developments and the related
opinions of analysts. These recent developments warrant inclusion as
an addendum. The following two articles relate to the rapid
devaluation of the dollar in late January relative to the euro. This
occurred in the week immediately preceding President Bush's State of
the Union address. Both of these articles suggest that Russia -- a
traditional holder of dollar reserves -- may be linking `political
overtones' to their exchanges of dollars for euros. The following
article may illustrate things to come if President Bush continues on
his present unilateral position on Iraq.
"The dollar remained on the ropes on Thursday, buffeted by
some hawkish remarks from the US administration about the
standoff with Iraq. It was also stung by a pointed signal from
Russia's central bank that the appeal of dollar-denominated
assets is waning.
"Oleg Vyugin, first deputy chairman at the Russian central
bank, said the bank plans to cut the share of US dollars in its
foreign exchange reserves and increase the share of other
currencies. . . .
"Some analysts questioned whether there may be political
overtones to Vyugin's remarks, that could be related to the
widening rift between the US and some other potential allies
about how to persuade Iraq to comply with UN weapons' inspectors
requirements.
"Although Russia's own foreign exchange reserves are fairly
small by comparison with the world's biggest central banks, the
question is, `Will other central banks follow and what does this
do to the ability of the US to finance its current account
deficit?' said Marc Chandler, chief currency strategist with
HSBC in New York.
"That deficit is currently around 5% of
gross domestic product and proving to be an increasingly heavy
millstone around the dollar's neck." [23]
[ [24]
(a) (b) ]
The next day (January 25th) some analysts reiterated that these
monetary movements may be related not only to the current
geo-political tensions, but may also indicate political motivations.
Is this perhaps a `warning shot over the bow' for the Bush
administration regarding their position on Iraq? These unusual
monetary movements by various central banks are disconcerting.
"All of a sudden, the dollar's supposedly slow and gradual
decline isn't looking so slow, or gradual.
"In fact the speed of the dollar's slide, against the euro in
particular, has taken even the most seasoned analysts by
surprise: a Dow Jones Newswires foreign exchange survey just ten
days ago showed the major currency trading banks forecasting the
euro climbing to $1.06 by the middle of February and not coming
near $1.10 until the end of the year.
"Instead, the euro has leaped to highs of around $1.0850 on
Friday and has already gained 4% on the dollar this year,
leaving strategists increasingly scrambling to update their
forecasts. The Swiss franc keeps reaching fresh four-year highs,
and the dollar is on the ropes against sterling and a host of
other key rivals.
"Perhaps a more important barometer of broader confidence in
U.S. markets is the Treasurys market. With the dollar falling,
gold spiking and stocks under pressure, Treasurys continue to
retain their safe haven appeal.
"But there are warning signals here, too, that are beginning
to get more attention. This week, the Russian central bank said
it was lowering the U.S. asset portion of its foreign exchange
reserves -- in other words selling Treasurys -- calling the
dollar a low-yielding currency.
"Analysts believe some of the large Asian central banks --
that between them hold the lion's share of the world's dollar
reserves -- are also considering rejigging their Treasury
holdings. A U.S.-led war in Iraq could further accelerate that
trend.
"Indeed, some political analysts believe that U.S. policy
over Iraq may already be having a direct impact on holdings of
U.S. assets, particularly with much of the rest of the world so
opposed to war. `It's hard for me to believe that the flow of
capital cannot help but be affected by how the U.S. is perceived
around the world,' said Larry Greenberg, an international
economist at Ried Thunberg & Co. in Westport, Conn.
"`Today if you have the U.S. acting (in
Iraq) against world opinion, there could be an even faster
pullback out of dollar-denominated assets,' said Joseph Quinlan,
global economist with Johns Hopkins University, in Washington.
`How we go to war influences the rate of decline of the dollar'
he said." [ [24]
(a) (b) ]
The day after the above article, the UK Observer's Will
Hutton wrote a forceful article against Bush's unilaterism. This
article further emphasizes the unfortunate economic imbalances of
the U.S. economy, and suggests that the potential geo-political
fallout of a unilaterist war in Iraq could create a devastating
divestiture of U.S. dollar denominated assets.
"The US's economic position is far too vulnerable to allow it
to go war without cast-iron multilateral support that could
underpin it economically as well as diplomatically and
militarily. The multi-lateralism Bush scorns is, in truth, an
economic necessity. . . .
"On latest estimates, its net liabilities to the rest the
world are more than $2.7 trillion, nearly 30 per cent of GDP, a
scale of indebtedness associated with basket-case economies in
Latin America.
"Its industrial base is so uncompetitive that it consistently
imports more than it exports; its current-account deficit, the
gap between all its current foreign earnings and foreign
spending, is now a stunning 5 per cent of GDP, continuing a
trend that has lasted for more than 25 years and which is the
cause of all that foreign debt. As a national community, it has
virtually ceased to save so that government and individuals
alike live on credit.
To finance the current-account deficit, a reflection of the
lack of saving, the US relies on foreigners supplying it with
the foreign currency it can't earn itself. . . .
"But if foreigners got windy about the prospects for share
and property prices and stopped buying, or began to withdraw
some of the trillions they have invested in the US economy, then
the dollar would collapse. Already, it has fallen nearly 10 per
cent against the euro over the last six weeks, but that could
just be the beginning. Economists at the Federal Reserve have
estimated that the dollar needs to fall by 30 per cent to bring
the flow of imports and exports into balance, but in today's
markets such a fall doesn't happen gradually. It happens
precipitately.
"If America and Britain spurn a second UN Resolution and go
to war with the active opposition of key members of the Security
Council like France and Russia, be sure the flow of dollars into
the US will slow down dramatically, and be sure there will be a
stampede of foreigners trying to sell. Shares on Wall Street
that Bush is so anxious to prop up are still massively
overvalued. Against this background, there could be a
devastating sell-off, with all the depressing knock-on
consequences for American consumer confidence and business
investment.
"What the markets were signaling last week was that this is
sufficiently within the bounds of possibility that it was worth
taking precautionary action, hence the selling. If the war was
over in a few weeks, the risks would be containable, and there
will be some shares well worth buying at today's prices. But if
the war was prolonged or the subsequent peace unstable, then the
pressure on the dollar and Wall Street could become very severe
indeed, reinforcing the depressive influences on an economy
where the underlying imbalances are so extraordinary.
"The US approach has been unilateralist
here as everywhere else: it does what it likes as it likes, a
policy that is now showing its limits. Bush needs badly to
change course, which Tony Blair should be urging on him. The UN
process needs to be respected and reinforced, not least to
reassure the markets, and better systems of economic governance
need to be put in place. The US's military capacity may allow
unilateralism; its soft economic underbelly, we are discovering,
does not." [25]
These articles indicate that the world community is reducing its
reliance on dollars in their central banks, and thus quite possibly
sending a message about their opposition to the U.S.'s position on
Iraq. Mr. Hutton is correct; our current economic structure simply
cannot afford a significant divesture of foreign investments. Thus,
it is inadvisable for President Bush to pursue any unilateral and
aggressive application of U.S. military force without broad
U.N. support.
European Commentary on the Essay:
’The Real Reasons for the Upcoming War With Iraq’
To finish, in January 2003, Mr. Co ílín
Nunan reviewed a draft of my essay on an Internet forum. He
subsequently published an exceptional summary of this research on an
Irish website (www.feasta.org). Hopefully my essay along with his article
may stimulate additional public awareness, and thus facilitate a
real debate regarding the Iraq issues. Below are excerpts from his
informative yet succinct article "Oil, Currency, and the War on
Iraq":
"One of the stated economic objectives, and perhaps the
primary objective, when setting up the euro was to turn it into
a reserve currency to challenge the dollar so that Europe too
could get something for nothing.
"This however would be a disaster for the US. Not only would
they lose a large part of their annual subsidy of effectively
free goods and services, but countries switching to euro
reserves from dollar reserves would bring down the value of the
US currency. Imports would start to cost Americans a lot more
and as increasing numbers of those holding dollars began to
spend them, the US would have to start paying its debts by
supplying in goods and services to foreign countries, thus
reducing American living standards. As countries and businesses
converted their dollar assets into euro assets, the US property
and stock market bubbles would, without doubt, burst. The
Federal Reserve would no longer be able to print more money to
reflate the bubble, as it is currently openly considering doing,
because, without lots of eager foreigners prepared to mop them
up, a serious inflation would result which, in turn, would make
foreigners even more reluctant to hold the US currency and thus
heighten the crisis.
"There is though one major obstacle to this happening: oil.
Oil is not just by far the most important commodity traded
internationally, it is the lifeblood of all modern
industrialised economies. If you don't have oil, you have to buy
it. And if you want to buy oil on the international markets, you
usually have to have dollars. Until recently all OPEC countries
agreed to sell their oil for dollars only. So long as this
remained the case, the euro was unlikely to become the major
reserve currency: there is not a lot of point in stockpiling
euros if every time you need to buy oil you have to change them
into dollars. This arrangement also meant that the US
effectively part-controlled the entire world oil market: you
could only buy oil if you had dollars, and only one country had
the right to print dollars -- the US.
"If on the other hand OPEC were to decide to accept euros
only for its oil (assuming for a moment it were allowed to make
this decision), then American economic dominance would be over.
Not only would Europe not need as many dollars anymore, but
Japan which imports over 80% of its oil from the Middle East
would think it wise to convert a large portion of its dollar
assets to euro assets (Japan is the major subsidizer of the US
because it holds so many dollar investments). The US on the
other hand, being the world's largest oil importer would have,
to run a trade surplus to acquire euros. The conversion from
trade deficit to trade surplus would have to be achieved at a
time when its property and stock market prices were collapsing
and its domestic supplies of oil and gas were contracting. It
would be a very painful conversion.
"The purely economic arguments for OPEC converting to the
euro, at least for a while, seem very strong. The Euro-zone does
not run a huge trade deficit nor is it heavily indebted to the
rest of the world like the US and interest rates in the
Euro-zone are also significantly higher. The Euro-zone has a
larger share of world trade than the US and is the Middle East's
main trading partner. And nearly everything you can buy for
dollars you can also buy for euros -- apart, of course, from
oil…
"All of this is bad news for the US economy and the dollar.
The fear for Washington will be that not only will the future
price of oil not be right, but the currency might not be right
either. Which perhaps helps explain why the US is increasingly
turning to its second major tool for dominating world affairs:
military force." [[26] (a) (b)]
It appears that Mr. Nunan concurs with my hypothesis with respect
to the euro and this upcoming war. Considering the economic
challenges that our nation faces, and the deplorable oil currency
war that I fear we are about to witness in Iraq, this author
advocates that the global monetary system be reformed without delay.
This would include the dollar and euro designated as equal
international reserve currencies, and placed within an exchange band
along with a dual-OPEC oil transaction currency standard.
Additionally, the G-8 nations should also explore a third reserve
currency option regarding a yen/yuan bloc for East Asia. These
reforms may lower our standard of living slightly, but would create
a far more equitable global monetary system, and thus hopefully
mitigate future armed or economic warfare over the currency of oil.
Tragically, President Bush and his administration do not appear
willing to initiate the arduous structural changes that our economy
must undertake if we are to adapt and compete with the euro as a
second international reserve currency. Instead, they intend to
enforce U.S. dollar hegemony for oil transactions via the
application of superior U.S. military force. This essay illustrates
that this dangerous
‘war-centric strategy’ could ultimately result in failure, as
monetary maneuvers against the U.S. dollar by the international
community indicate they will not tolerate aggressive U.S.
imperialism over Iraq's oil and its choice of oil currency. We must
not allow the militant imperialism of this administration to bring
down the American Experiment.
"I have sworn upon the alter of God, eternal
hostility against every form of tyranny
over the mind of man."
Thomas Jefferson
References:
[1]
http://www.ratical.org/ratville/CAH/ - _fn1
[2]
London, Heidi Kingstone, "Middle East: Trouble in the House of
Saud," The Jerusalem Report (January 13, 2003)
http://www.jrep.com/Mideast/Article-0.html
http://www.ratical.org/ratville/CAH/ - _fn2
[3]
Recknagel, Charles, "Iraq: Baghdad Moves to Euro," Radio
Free Europe (November 1, 2000)
http://www.rferl.org/nca/features/2000/11/01112000160846.asp
http://www.ratical.org/ratville/CAH/ - _fn3
[4]
"Economics Drive Iran Euro Oil Plan, Politics Also Key,"
IranExpert (August 23, 2002)
http://www.iranexpert.com/2002/economics
driveiraneurooil23august.htm
http://www.ratical.org/ratville/CAH/ - _fn4
[5]
"Forex Fund Shifting to Euro," Iran Financial News,
(August 25, 2002)
http://www.payvand.com/news/02/aug/1080.html
http://www.ratical.org/ratville/CAH/ - _fn5
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